THE IMPACT of China’s property curbs on Pan Hong is drawing mixed reactions from analysts.
CIMB is maintaining its ‘Buy’ recommendation as its analyst Gary Ng believes that Pan Hong is not affected by the market-cooling measures. Mr Ng’s target price is unchanged at 88 cents.
DMG, however, downgraded the stock to ‘Neutral’, as its analyst Brandon Lee expects sales to taper off over the next few quarters. Mr Lee’s target price is 50 cents, down from 85 cents previously.
Consensus target price is 69 cents, 38% above Pan Hong's last close price of 50 cents.
Despite the property curbs and prohibitive land prices, CIMB analyst Gary Ng points out that Pan Hong has a strong track record of acquiring land at attractive prices and is financially strong enough to expand in an economic slowdown.
There are other positives, such as pre-sales value for launches up to May 2010 amounting to Rmb 697.6 million.
Most of its residential units were sold before the market cooling measures were implemented by the central government.
Furthermore, the curbs mainly targeted speculative demand of residential property in first tier cities.
There are also existing projects in progress, and another half a million square meters planned for construction this year.
The commercial units comprising retail and office space launched recently do not fall within the scope of the current curbs. The group’s focus in second and third tier cities also insulated them from the impact of the measures.
Finally, despite regulatory cooling, the general outlook for China’s property market remains positive as demand for private housing is supported by rising urbanization and affluence. 
DMG downgrades stock to 'neutral'
While DMG’s Mr Lee likes Pan Hong for its 100% RNAV exposure to China’s growing lower tier cities, he views policy risks as a cap to share price upside.
He notes that ever since the property curbs kicked in, transactions for new residential units have fallen, even though prices have not.
The management expects this trend to continue over the next two quarters, before a recovery in volumes during end-CY10.
In view of this, DMG downgraded its forecast EPS by 19.8% to Rmb 0.36 for FY2011 to reflect the slower sales.
| Report Date | Call | Target Price | |
| CIMB | 1 Jun 2010 | Buy | 88 cents |
| DMG-OSK | 2 Jun 2010 | Neutral | 50 cents |
Related story: PAN HONG multiplies top line 10X despite China’s austere property curbs
